Three out of 10 Americans have a credit score of less than 620, the report said, citing data from credit score provider FICO.

Meanwhile, the best mortgage rates were reserved for those with a credit score of 740 or higher -- about 40% of the population -- compared to 720 three years earlier.

The average interest rate on conventional 30-year fixed rates for a borrower with credit scores over 740 was 4.42%. Borrowers with mid-range credit scores between 620 and 739 received APRs, on average, between 5.09% and 4.47%, with the APR rising as the credit score drops.

"Despite all-time high levels of affordability in the housing market, tightened lending standards mean that nearly one-third of Americans are unlikely to be able to achieve the American Dream of homeownership because they can't qualify for a mortgage due to a low credit score," said Erin Lantz, director of mortgages at Zillow in a release.

-- Written by Shanthi Bharatwaj in New York.

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